One of my favorite moments as an attorney occurred in October 2016. It was that month that New Jersey Governor Chris Christie signed into law a repeal of the New Jersey Estate Tax in exchange for a gas tax of 23 cents per gallon. And in that month one of my successful business-owner clients called me up, and in her heavy New Jersey accent asked, “Alec, does this mean I don’t have to move to Florida?!”
I said to her, “Jane [not her real name],, that’s exactly what it means! But just remember this every time you pump your gas and you’re paying an extra 23 cents. Your kids won’t have to pay anything to New Jersey when you and Gene pass!”
She yelled, “Mazel tov!” and hung up the phone.
I am reminded of this conversation as I drive to the station and ask the attendant to fill up my tank (because in New Jersey, of course, we do not pump our own gas), while sweating at the bill because gas is almost $5 a gallon in the tri-state area.
Considering a lot has changed since 2018 when the repeal came into effect, let’s review the current state of estate tax law in the New York-New Jersey area.
Let’s start with the good news. On the federal level a single taxpayer can transfer $12.06 million either during life or after death, which translates into $24.12 million per married couple, without paying any gift or estate taxes. Any amounts above these figures are taxed at a 40% rate.
However, there are a few important points to note. First, assuming spouses are legally married and are U.S. citizens, there is no tax after the death of the first spouse if the surviving spouse is the sole beneficiary of the deceased spouse, even if the combined estates exceed $24.12 million. It’s your children that have to pay the bill to Uncle Sam when the second spouse dies.
Second, your taxable estate includes life insurance unless the life insurance is held in a trust. I have many clients who are safe from the federal estate tax without life insurance, but when you include life insurance in the equation, they get very close to the threshold.
Lastly, on January 1, 2026, these figures will be cut in half if Joe Biden does nothing. The only reason these exemption numbers are so high is because of former President Trump’s tax cuts in 2017. However, this part of the tax cut will sunset in 2026 to roughly half of what it is today. (We do not know the exact figures yet.)
President Biden and his cohorts want to reduce this number even further to $3.5 million per estate. The years 2020 and 2021 were great for estate planners because many of our clients were rushing to avail themselves of the high estate tax exclusion before the Democrats could make changes to the estate tax law. Thankfully, as of now, the law has not changed.
If you live in New Jersey, as mentioned above, there is no New Jersey estate tax (mazel tov!), but there is an inheritance tax. The good news is that if all of your assets are going to children or grandchildren then you do not have to worry about the inheritance tax. But if you have assets (other than life insurance) going to siblings, nieces, nephews or friends there will probably have to be tax paid to Phil Murphy in the 11% to 16% range. Assets passing to charities are free from inheritance tax.
In New York, there is an estate tax for estates over $6.11 million. To make matters worse, New York has the dreaded “Estate Tax cliff,” which basically means that if your estate is $305,500 more than $6.11 million you’ll be taxed on the entire amount, not just the amount over $6.11 million. If Jane had lived in New York she would still be on her way to Florida! On the other hand, there is no separate inheritance tax in New York, and so it does not matter in New York who receives your assets as it does in New Jersey.
Yet, there is hope for your estate tax bill. There are many ways to plan around the estate tax, including: using the $16,000 annual exclusion to make gifts during your lifetime; creating advanced trusts for your spouse or your children to protect you and your estate; and purchasing life insurance in a trust, among others. While you might be able to escape the estate tax, gas is still almost $5 a gallon. Even moving to Florida won’t help that!
Alec R. Borenstein, Esq. is an estate planning attorney and partner at Borenstein, McConnell & Calpin, P.C., with offices in New Jersey and New York City. If you would like to schedule a consultation email Alec at [email protected] or call 973-379-2444, Ext. 5.